These days, almost everything your bank offers, you can get through a mutual fund company or discount brokerage firm. Their asset-management accounts offer unlimited check writing, automatic teller machine cards, ATM cards, and credit cards. They take direct deposits of your paychecks, and they can automatically pay a number of your bills. Plus, you get a consolidated statement that lists all deposits, withdrawals, and investment activity – a feature that some banks are only beginning to offer their best customers.However, there are drawbacks to using mutual fund or brokerage accounts, of course. They don’t offer mortgages. They don’t have safety-deposit boxes. Their smaller branch networks mean you generally can’t walk in off the street to pick up an application or contest a fee. But for many customers, these accounts make a lot of sense.

Fidelity’s Ultra Service Account, for instance, gives you all the features of a regular checking account-plus access to its venerable family of mutual funds. You can choose to draw your checks on one of eight tax free money market ends, with yields ranging from 1.91 percent to 2.25 percent, or a taxable fund with a 2.99 percentage rate. The account requires a $10,000 investment and charges no annual fee. The Schwab One Account, which also has no annual fee, requires $5,000. And once you’ve opened an account, you can tap Schwab’s massive supply of free, no-load mutual funds. Schwab’s four money market funds, three of which are tax exempt, pay rates of 1.87 percent to 3.04 percent. Banks’ interest bearing checking accounts, on the other hand, were paying an average of 1.48 percent at the end of April, according to Bank Rate Monitor, a newsletter that tracks rates and yields.

Citibank, realizing the attraction of those combination investment and deposit accounts, recently introduced a 12.5 percent a year. (Citigold accounts have many of the same features). The only problem: you need to have at least $100,000 with the bank. And unlike competing services, banks generally impose penalties if you dip below their minimum balance requirements.

II

"Want to use a teller? It’ll cost you."

Nobody goes into a bank these days expecting to find George Bailey, the genial thrift owner of "It’s A Wonderful Life." That’s just unrealistic. But the next time you visit your branch office, you might be in for another sort of surprise: many banks are starting to charge their customers for using tellers or talking to them on the phone.There’s a good reason from the bank’s perspective. It costs them $2 to $3 for every live teller transaction, while ATMs cost half as much, and automated phone transactions run as little as 25 cents a pop.

If you have an account at Frost National Bank of San Antonio, you get only two chances a month to talk to someone on the phone. Then you get socked $2 for each additional transaction that could have been done by machine. The system was designed to discourage "abusers who were calling too often, "says bank President Pat Frost.

At Wells Fargo Bank, you’re limited to three free phone calls per month to the customer service line when your checking account balance dips below $750. After that it costs $1.50 to speak with someone on the phone and 50 cents to use the automated phone line. Bank of America, meanwhile, is offering a special ATM oriented checking account. It costs a relatively low $5 a month – as long as you stick to the machines. If you use a teller for transactions that could be done at an ATM, the bank hits you with a bill for $4.

What can you do about it? Keep an eye on the fine print in your monthly statements. When banks change their fee structures they must notify you at least 30 days in advance.

III

"We want to close your local branch."

Fees for using a teller may be annoying, but for many consumers the fees are better than losing tellers altogether. Yet that’s just what is happening all over the country, as a number of big banks are closing their branches at a steady clip.Chemical Banks had 425 branches in New York City area in December 1991. Come this December, it will have 280. Shawmut National of Hartford, Conn., had 440 branches in 1988. Today it has 269 – and dropping. A Shawmut branch now must have at least $40 million in deposits to stay open, double the deposit base it required only a few years ago. "It won’t be long before we’ve closed more branches than we have left," says a spokesman.Bankers contend that many consumers don’t care about branches anymore. Especially since so many people have their paychecks deposited electronically and withdraw cash from money machines. "It is less important that there be a bank branch at every corner," says Bob Stickler, a spokesman for Florida’s Barnett Bank. Bob Stickler has been acquiring other banks and closing down many of their branches. In many cases, they’re being closed because an existing Barnett Bank branch is nearby. But the bottom line is that branches are expensive to operate and banks want to run as few as possible. Concedes Stickler, "It is a profitability issue."

IV

"We’ll charge you for things you never imagined."

Although banks are required to inform customers 30 days before they raise their fees, there’s no limit to how often or how high they can boost many of the charges – or for bouncing a check. Some however, will actually zap you when a check you’re depositing gets returned for insufficient funds. Core States Bank of Philadelphia charges $5 in this case. "There’s no way we can charge even higher fees. Chase Manhattan for instance, hits its customers for $10 when a check bounces, and National City Bank in Cleveland weighs in with a charge of $20.Here are a few other charges you might not be aware of: photocopies of canceled checks over three months old ($6 per page at Bank of Boston), collecting money for a check drawn on an overseas bank ($30 for a check over $100 deposited into your Citibank account), and holding your mail while on vacation ($10 a month at Barnett Bank).

V

"…but we’ll drop our fees if you ask."

When it comes to fees, consumers have much more leverage than banks let on. Under intense competition from mutual fund companies and brokerages’ cash-management accounts, banks are desperate to keep your business. All you have to do is ask.Consider Fleet Financial Group of Providence. To keep its customers happy, the banking company says it waives $10 million a year in bounced check fees. Pat Frost of Frost Bank says he doesn’t want to lose a customer over a $20 charge, so he gives branch personnel the discretion to drop fees when valued consumers complain.Your credit card is another area that’s ripe for negotiation. If you call up and ask for a lower rate or a reduced annual fee, the bank will often give in. (See "Dial a Deal," page 58)

Even private bankers, who usually charge one percent of assets under management to invest your money, will negotiate fees. In Palm Beach, FL, where competition is fierce to attract the wealthy retirees who flock there, some bank and trust companies cut their management fees by 20 percent to win business away from their competitors.

VI

"Our loan rates are not what they appear to be."

When you get a home loan, be careful you’re paying what you should. Banks have been known to adjust their adjustable rate loans incorrectly – often leaving you with a higher monthly payment than necessary. And up front, lenders may be socking you with a rate higher than other consumers are paying.The federal Reserve Board is currently running an investigation on loan "overages," in which consumers unwittingly accept a higher than average rate. "The practice is very widespread in the mortgage industry," says Michael Rouse, manager of the oversight section in the Fed’s division of consumer and community affairs. Mortgage brokers and bank employees "have an incentive to get as much from a customer as they can," Rouse claims.

While overages are bad for consumers’ pocketbooks, they’re not illegal. What the Fed is worried about is that home lenders are more often overcharging minorities than whites, which is illegal.

As for adjustable rate loans, lenders were widely criticized several years ago for incorrectly adjusting ARMs. But it’s still happening. "We believe that the problem is as prevalent as it was back in 1990," says Brian Moloney, vice president of Consumer Loan Advocates, an Illinois based nonprofit organization that reviews adjustable rate mortgages for consumers.

Of the 9,000 adjustable loans Consumer Loan Advocates has analyzed over the past four years, Moloney says, it found a 47.5 percent error rate. Twice as often as not, the mistakes were in the lender’s favor. The Fed’s most recent survey of adjustable rate mortgages, in 1992, was not quite that damning. Still, it found that 14 percent of the banks it oversees that offer ARMs had made errors. The Fed says the most common mistakes that were made by rounding numbers when rates were being adjusted, adjusting on the wrong date and using the wrong index.

Lenders have to send you notification at least 25 days before a new payment amount is due. By all means, check the notice carefully to make sure the right index is being used for the adjustment and that the lender doesn’t exceed annual or cumulative caps on interest rate increases.

VII

"We’re in a hurry to change our loan rates. But savings rates? They can wait."

As the prime rate goes, so do your interest payments. Any uptake in the key lending rate is almost immediately felt in credit card, home equity and other loans pegged to the prime. But banks aren’t so quick to pass along rising rates to the interest they pass on deposit accounts.Almost every time the prime rate rises by 50 basis points, or half a percentage point, rates on certificates of deposit climb by only 25 to 40 basis points, says Robert K. Heady, publisher of Bank Rate Monitor. He adds that at some banks, it takes as long as eight weeks for the full change to kick in.

These days, with loan demand weak, they’re not even going up that fast. (See "Playing Rate Tag," page 55.) Rates on money-market accounts lag even more. They rise about 15 to 25 basis points for every half-point rise in the prime, says Heady.

Here’s how it has worked this year at First Chicago. On February 15, before rates started climbing, the bank was charging 7.05 percent for a 30 year fixed rate mortgage. By June 1, the rate had jumped 160 basis points, to 8.65 percent. In the same period, the annual yield on a one-year certificate of deposit at the bank moved only 83 basis points, to 2.63 percent. A First Chicago spokesman says there’s "always a lag" between interest rates and savings rates, adding that First Chicago pays among the best rates in its market.

But some members of Congress don’t think there always needs to be a lag, and in June they began hearing to investigate the practice.

VIII

"We’re working on Commission."

When a friendly teller recommends that you talk to one of the bank’s "investment specialist," think twice about his motivation. There’s a chance to win a trip to Hawaii for the referral. Rep. Henry B. Gonzalez, head of the House Banking Committee, looks down on this practice, known as cross selling. He doesn’t want tellers talking about a bank’s mutual funds or referring customers to the investment division unless a customer specifically asks for it. Arthur Levitt, chairman of the Securities & Exchange Commission, has weighted in on the issue, too. This spring he wrote a letter to the Comptroller of the Currency saying that regulators "should act together to prohibit the payment of referral to financial institution employees."

But they’re fighting a well-established system. Just over one- third of large banks pay branch managers for making customers referrals, according to the American Bankers Association, while 41.9 percent pay other employees for recommending clients to a bank’s investment division.

Chase Manhattan gives tellers $10 for each referral, for instance, National City gives its tellers gift certificates to local department stores, or the chance to win a weekend in New York or Toronto. "We want them looking for sales opportunities," explains Edward Christian, Nat City’s senior vice president.

IX

"Our mutual funds aren’t so hot."

When banks push their investment products, they are usually quick to tout the benefits of their mutual fund program. But bank funds are not the greatest. Almost half of them come with up front sales charges, or loads, for one thing. And their expenses are high.

Banks’ domestic equity funds have an average expense ratio of 1.51 percent, half a point higher than nonbank funds, according to CDA/Wiesenberger of Rickville, MD. (This ratio is a measure of a fund’s expenses to its total assets. Their expenses directly reduce your return.) Domestic fixed-income funds run by banks rack up 1.03 percent in expenses each year, compared with 0.78 percent for nonbank funds. In international fixed income funds, the expense ratio of bank funds is almost double that of nonbank funds – 1.60 percent compared with 0.87 percent.

That might be acceptable if bank funds were exceptional performers. But they’re not. Over the past three years, the average bank managed, fixed income fund was up 0.84 percent, according to CDA/Wiesenberger. The average return for nonbank fixed income funds was 11.98. Bank funds only edged out their nonbank peers in the category of five-year annual return for equity funds, with an average annual return of 14.06, compared with 13.56 for nonbank funds.

Remember too, that bank funds haven’t been around for long and don’t have much of a history to analyze. Only 860 existed before 1989. While new funds do have their advantages (see "The Five Best New Funds," page 79), they’re generally not the best place for much more than a silver of your savings.

X

"We’re out to rewrite credit card laws."

The vast majority of credit cards these days are issued by banks’ subsidiaries in South Dakota or Delaware. There’s a simple reason for that: those states have the fewest restrictions on the interest rate and fees that card issuers may charge. But now, bankers are pushing other states to lower their restrictions as well – and they’re getting somewhere.

This spring, Maine eliminated several consumers protections, including a $12 cap on card fees, and 18 percent ceiling on interest rates and restrictions on late charges. "The lobbying was intense," says Ruth Joseph, a Democrat in the Maine legislature who fought the bill. She adds that the banking industry was "ever present." New York’s state legislature formally got rid of its cap on interest rates in January. Now only a "usurious" rate of more than 25 percent are prohibited.

Elsewhere, Colorado recently gave banks the ability to charge a late fee on credit card purchases for the first time. And in California, bankers are fighting for the right to charge a number of fees, including one when you exceed your credit limit. "If California goes, it will be pretty hard to stem the tide elsewhere," says Ken McEldowney, executive director of Consumer Action.

Banks know every trick in the money making book, and unfortunately, they’re using them on you. If you know what they’re up to, there are ways you can fight back.